Risk pool eyed as California struggles with fire costs

In this Nov. 26, 2018, file photo, a Pacific Gas and Electric lineman works to repair a power line in fire-ravaged Paradise, Calif. PG&E officials said Friday that due to the first red-flag warning of the year, they may turn off power to customers in eight Northern California counties to reduce the risk of wildfire.(Photo: AP Photo/Rich Pedroncelli, file photo)

SACRAMENTO, Calif. (AP) — Officials were struggling Wednesday to find ways for homeowners to afford insurance in fire-prone areas of California and for utilities to survive liability from devastating wildfires that threaten to worsen with climate change.

One option on the table is the creation of a new state catastrophe fund backed by tens of billions of dollars.

Massively expensive wildfires in 2017 and 2018 partly prompted Pacific Gas & Electric Corp . to file for bankruptcy protection and led to the creation of a five-member board that is considering who should pay for increasingly destructive wildfires.

Board members have until July 1 to make their recommendations. Gov. Gavin Newsom plans to outline his plan to address the problem by mid-April.

California's recent past "is fraught with wildfires," Chief Deputy Insurance Commissioner Joel Laucher told board members during a meeting in Santa Rosa, where a working class neighborhood was destroyed by wildfires in 2017. "This is the world that insurers are looking at."

The danger is making it harder for people to get or afford home insurance, frustrating residents who may have moved decades ago to rural areas in search of cheaper housing in a natural setting.

Courts and regulators have piled the financial burden of the fires on utilities, leading Moody's Investors Service to downgrade credit ratings for California's three big investor-owned utilities.

Courts have ruled that utilities are entirely liable for damage caused by their equipment, even if they followed all safety precautions. Regulators, meanwhile, have saddled utility investors with the legal burden for fires caused by mismanagement of electrical equipment.

Moody's on Wednesday issued a report analyzing several possible remedies, including the creation of a state catastrophe fund that it says seems to be the most likely outcome.

Creation of a fund "appears to be the reform that is most likely to happen," Moody's said in its analysis. Republican Assemblyman Chad Mayes of Yucca Valley has proposed a wildfire liability insurance fund.

A fund could help stabilize utilities, but the extent of the help depends on "unresolved questions" including the size of the fund and how it addresses wildfire costs, Moody's said.

Negotiators currently appear to be discussing a fund in the range of $15 billion to $30 billion, Moody's said, adding a larger fund could protect against more fires but could push higher costs onto customers.

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Betsy Cowley lives in Pulga, a tiny town east of Chico, where the Camp Fire started.
Damon Arthur, Record Searchlight

Under Mayes' bill, public electric utilities as well as investor-owned utilities such as PG&E could participate by paying in money from customers and shareholders. They would be reimbursed for wildfire costs at levels set by state regulators who could consider the extent to which utilities acted properly.

The fund managers could also issue bonds secured by fund contributions to help pay wildfire costs.

Rolling the cost to utility customers, Moody's said, also raises the question of balancing the interests of customers who live in fire-prone areas with those in lower-risk areas.

"We must map out longer-term strategies, not just for the utilities' future, but for California's energy future, to ensure that the cost of climate change doesn't fall on those least able to afford it," Newsom warned in his State of the State speech in January.

He convened a "strike team" of financial, bankruptcy and energy experts and hired Guggenheim Partners and the Los Angeles-based O'Melveny law firm to advise him on the proposals he is set to announce in mid-April.

California's wildfire risk is so great now that even risk pools or catastrophe bonds aren't attractive to investors, warned Carolyn Kousky, executive director of the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania.

"It's not like there's one silver bullet here that's going to solve the problem," she told board members.

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A Paradise evacuee rests with his head on his hands at the East Avenue Church Shelter in Chico, California on November 15, 2018. The shelter was full less than a week after the Camp Fire destroyed the town of Paradise, displacing thousands and killing more than 75. Thomas Hawthorne/USA TODAY NETWORK

ER nurse Birgitte Randall, right, hugs a volunteer at the East Avenue Church Shelter in Chico, California, on Nov. 17, 2018. Randall fled her burning hospital Feather River in Paradise as the Camp Fire raged through town, eventually destroying her home. Responding to a Facebook request for help at the East Avenue Shelter, Randall and several of her colleagues and friends quickly sprung to action, starting a pop-up clinic at the shelter to aid evacuees in need of medical attention. Thomas Hawthorne/USA TODAY NETWORK

A fire hydrant bursts after a vehicles hits it outside of the East Avenue Church Shelter in Chico, California on November 15, 2018. The minor accident caused water access issues inside the shelter for the night. Thomas Hawthorne/USA TODAY NETWORK

Robert High crouches under a table to hide while feeling sick at the East Avenue Church Shelter in Chico, California on November 15, 2018. High said he lost everything he had to the fire in Paradise. Nearly a week after the Camp Fire killed at least 80 and displaced thousands, evacuees faced the challenge of finding shelter in Chico. Many of the shelters reported an outbreak of Norovirus with several people at east avenue showing signs of sickness. Thomas Hawthorne/USA TODAY NETWORK

Nurses lean over the medical station inside the East Avenue Church Shelter in Chico, California on November 15, 2018. Less than a week after the Camp Fire destroyed the town of Chico, a rotational volunteer based nursing staff had joined the East Avenue Church shelter to lend a hand to the displaced evacuees seeking hosing there. Thomas Hawthorne/USA TODAY NETWORK

Kathleen Hassig wipes a tear from her eye after talking about her experience volunteering with Camp Fire evacuees at the East Avenue Church Shelter in Chico, California on November 16, 2018. Thomas Hawthorne/USA TODAY NETWORK

Pastor Ron Zimmer holds his morning coffee and stands outside the East Avenue Church Shelter in Chico, California on Nov. 17, 2018. Pastor Zimmer opened his church as a pop up shelter by the morning after the Camp Fire had burned through the town of Paradise, killing at least 80 and displacing thousands. Thomas Hawthorne/USA TODAY NETWORK

Evacuees from the Camp Fire, most of whom lost their homes and property to the flames, post tents at the East Avenue Church Shelter in Chico, California on November 16, 2018. Many camped waiting for warmer shelter as the temperature decreased into the 40s at night. Thomas Hawthorne/USA TODAY NETWORK

Daniel Cayer stands in front of his 1929 Ford Roadster at the East Avenue Church Shelter in Chico, California on November 16, 2018. Cayer hitched the roadster to the back of his 1963 Chevy pickup and raced through the flames, abandoning everything he owned in Paradise before arriving at the East Avenue shelter. Thomas Hawthorne/USA TODAY NETWORK

Amy Massey holds her dog Pizza at the East Avenue Church Shelter in Chico, California on November 16, 2018. Massey was forced to set up a tent in the back lawn of the East Avenue Church shelter after fleeing the Camp Fire as it burned through Paradise and her home. Thomas Hawthorne/USA TODAY NETWORK

Volunteers coordinate donated supplies at the East Avenue Church Shelter in Chico, California on November 16, 2018. Nearly a week after the Camp Fire tore through the town of Paradise, killing at least 80 and displacing thousands, people still on the ground said it was money and transportation evacuees needed the most. Thomas Hawthorne/USA TODAY NETWORK

Camp Fire evacuees, many whom lost their homes and property in Paradise to the flames, watch as search teams look for human remains in Paradise on the news during dinner at the East Avenue Church Shelter in Chico, California on November 16, 2018. Thomas Hawthorne/USA TODAY NETWORK

Piles of hand sanitizer sit on a table at the East Avenue Church Shelter in Chico, California on November 16, 2018. Norovirus had been reported at many of the shelters in Chico, and at East Avenue more than 20 people had shown symptoms of having gotten sick. Thomas Hawthorne/USA TODAY NETWORK

Bags filled with "biohazard" pile in a corner of the parking lot at the East Avenue Church Shelter in Chico, California on November 16, 2018. Norovirus had been reported at many of the shelters in Chico, and at East Avenue more than 20 people had shown symptoms of having gotten sick. With little direction from the any county officials, volunteers medical staff at East Avenue had been forced to move the waist to the best location they could find. Thomas Hawthorne/USA TODAY NETWORK

A volunteer construction crew lays news plumbing for showers at the East Avenue Church Shelter in Chico, California on November 17, 2018. According to East Avenue's pastor, Ron Zimmer, the city of Chico green lit the costly operation and it was completed in 14 hours. Thomas Hawthorne/USA TODAY NETWORK

Volunteer Matt Negley washes down a soap station with bleach at the East Avenue Church shelter in Chico, California, on Nov. 17, 2018. Nearly a week after the Camp Fire burned through the town of Paradise, killing at least 84 and displacing thousands, several reports of Norovirus outbreak were reported at shelters across Chico. Thomas Hawthorne/USA TODAY NETWORK

Members of the Air National Guard out of Fresno arrive at the East Avenue Church Shelter to help set up isolation tents in Chico, California on November 17, 2018. According to volunteers at the shelter, the isolation tents had been dropped off by government officials three days before but had not been set up. Nearly a full week after the shelter had opened the three tents sat empty and unusable. Thomas Hawthorne/USA TODAY NETWORK

ER nurse Birgitte Randall (Center-right) speaks with volunteer medical staff at the East Avenue Church Shelter in Chico, California on November 17, 2018. Randall fled her burning hospital Feather River in Paradise as the Camp Fire burned through town, eventually destroying her home. Responding to a Facebook request for help at the East Avenue Shelter, Randall and several of her colleagues and friends quickly sprung to action, starting a pop up clinic at the shelter to aid evacuees in need of medical attention. Thomas Hawthorne/USA TODAY NETWORK

Members of the Air National Guard out of Fresno set up lights outside the East Avenue Church Shelter to help with working on isolation tents in Chico, California on November 17, 2018. According to volunteers at the shelter, the isolation tents had been dropped off by government officials three days before but had not been set up. Nearly a full week after the shelter had opened the three tents sat empty and unusable. Thomas Hawthorne/USA TODAY NETWORK

ER nurse Birgitte Randall (center) speaks with an evacuee of the Paradise fire at the East Avenue Church Shelter in Chico, California on November 17, 2018. Randall fled her burning hospital Feather River in Paradise as the Camp Fire burned through town, eventually destroying her home. Responding to a Facebook request for help at the East Avenue Shelter, Randall and several of her colleagues and friends quickly sprung to action, starting a pop up clinic at the shelter to aid evacuees in need of medical attention. Thomas Hawthorne/USA TODAY NETWORK

A week after the Camp Fire burned through the town of Paradise killing at least 84 and displacing thousands, Pastor Ron Zimmer holds a Sunday service at the East Avenue Church in Chico, California, on Nov. 18, 2018. By the morning after the fire Pastor Zimmer had opened his church to the displaced and evacuated, becoming a pop-up shelter with a volunteer-run medical facility. Thomas Hawthorne/USA TODAY NETWORK

85-year-old Minna Anderson, right, sits on a bed next to her daughter Libby Andersen, left, at the East Avenue Church Shelter in Chico, California, on Nov. 15, 2018. The two lost everything when the Camp Fire took over their home in Paradise, forcing them to flee. Thomas Hawthorne/USA TODAY NETWORK